Starting a business can prove a real strain on your finances, particularly if you’re attempting it alone. 

Coming into possession of the full amounts required at every stage of the process is one of the biggest challenges, and many people resort to using loans and similar financial arrangements to do this.

The difficulty with this approach is that interest rates can be high, and you may find yourself struggling to pay back everything you owe while juggling the costs and administration of running a start-up by yourself.

Another option is to refinance your home and release enough equity to cover your costs. However, this can be risky too. In this article, the specialists at Property Solvers – experts in selling your house fast – will explain what you’ll need to consider before you decide to do this.

We’ll also look into the pros and cons of refinancing.

What does “refinancing” mean?

Simply put, this term refers to the act of replacing your existing mortgage with a new one that is subject to different and potentially more beneficial terms.

In doing this, you will be able to release some of the equity you already have in your property and utilise it as you wish.

What are the pros of refinancing?

Not only may refinancing allow you to access funds that, until this stage, have been tied up in your property, but your new mortgage deal may allow you to pay a lower interest rate or even to move from an adjustable mortgage to one that is fixed-rate.

If you do this, you may profit even further from taking this route in the long run.

Another positive aspect is that you’re not tied down to your old lender when looking for a new mortgage. Either on your own or with the help of a broker, you can shop around to find the best deal from almost any source. Just be sure to check their credentials.

What are the cons of refinancing?

The major downside to refinancing is that is can be risky. For a start, it costs money. The closing costs involved in moving on from your original mortgage can be considerable, so it’s important to know whether you’ve built up enough equity or have enough savings to recoup these expenses.

Furthermore, the new mortgage terms that are available may not be much better than your old ones, if at all.

Finally, if you haven’t been paying off your existing mortgage for long, there won’t be a great deal of equity to release. If you try to release too much and your business subsequently goes under, it’s unlikely that you’ll be able to avoid lenders taking possession of your home.

When can I refinance?

A typical lender will not permit refinancing within a year of the first mortgage being taken out, and – depending on the amount you are paying per month – it may be best to wait considerably longer to ensure that you have built up enough equity to make it worth your while.

As mentioned above, it’s a good idea not to refinance your property if you’ve only recently bought it, as you won’t have built up a great deal of equity.

What do I need to check before I refinance?

Firstly, you need to calculate how much equity your property currently holds and how much you’ll be able to release by refinancing. 

If your home has recently been valued, you should subtract the amount remaining on your mortgage – plus any other relevant loan amounts – from the amount at which it was appraised. The resulting figure should be the amount of equity available.

Be careful not to release too much, or you may risk losing your home if things don’t go to plan.

Check your credit score too. The higher it is, the lower the interest rates you may be able to achieve on your new mortgage.

You should also double check that the amount you’ll receive from refinancing your home will be enough to fund all elements of your business and sustain you and your family for as long as you’ll need to get your start-up off the ground – taxes and all.

Including a contingency is also a very astute approach when budgeting, as unexpected costs may arise before your company is fully-fledged.

Failing to do this can be a major oversight and may see you struggle significantly in a financial sense.

Where can I get further advice on refinancing my home?

Most mortgage lenders – including banks and building societies – will have advisors who can speak to you about the potential to remortgage your home. Shop around for the most reputable organisations first, as you want those advisors to have your best interests at heart.

You can also speak to mortgage brokers. These experts are regulated, so the quality of their advice can be trusted – plus, they aren’t usually affiliated with any particular mortgage lender, which means they’re more likely to be impartial.

Furthermore, there is a variety of handy free refinancing calculators online that can help you to do your own research regarding the amount you may be able to release.

For many people, the equity in their home is one of their most valuable assets – so it’s vital to think carefully before releasing yours in order to finance a new company. Try to mitigate as many risks as possible and work on a solid business plan right from the start.

Create a watertight budget, including a good contingency, and think about how much it will cost you and your family to live, as well as how much your new business will cost to build and run. Your plan needs to be viable and well-considered to warrant you taking this kind of leap.

If all goes well, you’ll come out with a substantial pot of money to cover the considerable expenses of starting a business. Just make sure you seek in-depth advice – from an impartial and reputable specialist – that is specific to your unique circumstances before you begin.